According to the news report by Reuters, Spotify posted its quarterly earnings report on Wednesday and it was good news. Sweden-based Spotify is the world’s most popular music streaming company and has always said that it puts growth over profitability.
For the quarter gone by, the music streaming company posted its first ever operating profit for the quarter. This was driven by a solid gross margin and lower-than-expected growth in headcount. The company, however, warned that it would face losses in 2019 and gave a rather modest forecast, which disappointed investors.
The music streaming service company posted fourth quarter sales, which were in line with analyst estimates. The company also stated that most of its markets had seen growth.
Despite the fact that Spotify posted profits for the first time in its history, it still saw its shares drop by 4% in early trading.
Spotify’s Q4 operating profit was at €94 million (~$107 million), vis-à-vis the market expectation of a €16 million loss. Last year, the company had posted an €87 million loss.
Sales also went up by 30% for the fourth quarter, which was quite close to the 31% market analysts were expecting.
Hargreaves Lansdown analyst Nicholas Hyett said that the Swedish company’s core business was looking more and more comfortable. He stated that while the cost of expanding into another 13 countries as well as the development of artist as well as advertising tools were holding back the company’s bottom line, it was not a long-term problem.
Spotify posted a gross profit margin of 26.7% for the last quarter, however, said that it was expecting this margin to decline to between 22.5% and 24.5% in quarter one, and down to between 22% and 25% for 2019. Market expectations of the company’s gross margin were at 26% for 2019.
Other forecasts for the year were also muted.
The music streaming company stated that sales would grow by 21% to 29% and losses would amount to between €200 million and €360 million (~$226.69 million and $408.04 million).
The number of premium subscribers were expected to grow to 117 million to 127 million by the end of this year. Analysts’ estimates of premium subscriber numbers was 121 million.
For some analysts, Spotify’s growth rate is a cause for concern. The company had grown by 52% in 2016, 39% in 2017 and 29% in 2018.
Research firm Redeye’s analyst Tomas Otterbeck said that investors were worried about global growth. He also said that all companies that were cases for growth but gave weak forecasts tended to see a drop in their share prices.
Otterbeck said that Spotify’s forecast for 2019 in terms of revenue, loss as well as user base growth was weak. He said that investors were particularly worried about the slowing growth in users.
GP Bullhound’s partner and fund manager Joakim Dal said that the main focus for the company was growing its user base. Dal said the potential market for this service numbers in the billions.
Dal also said that he expected the company to continue investing heavily in attracting more customers as well as improving its product so that it could retain its existing customer base and also pull in more new subscribers.
Operating in a little less than 80 countries, Spotify reported that its total number of users, which included users of the advertisement supported service, had grown to 207 million, which was up from 191 million users at September end.
The company, which launched its music streaming services in 2008, now has 96 million paid subscribers. Its closest rival that was launched in 2015, Apple Music by Apple Inc., has about 50 million paid subscribers.